Nationwide Mut. Fire Ins. Co. v. Overstreet

• Decision Date: 24 June 2008
• Docket Number: Civil Action No. 1:07cv1215.
• Parties: NATIONWIDE MUTUAL FIRE INSURANCE CO., Plaintiff, v. Terry O. OVERSTREET, et al., Defendants.
• Court: U.S. District Court — Eastern District of Virginia

568 F.Supp.2d 638

NATIONWIDE MUTUAL FIRE INSURANCE CO., Plaintiff, v. Terry O. OVERSTREET, et al., Defendants.

Civil Action No. 1:07cv1215.

United States District Court, E.D. Virginia, Alexandria Division.

June 24, 2008.

COPYRIGHT MATERIAL OMITTED

Daniel L. Robey, Henry Wade Kimbrell, Robey Teumer & Drash, Fairfax, VA, for Plaintiff.

Robert Sinclair Corish, Corish Hill & Associates PLLC, Frederick, MD, for Defendants.

MEMORANDUM OPINION

T.S. ELLIS, III, District Judge.

In this insurance coverage dispute, plaintiff Nationwide Mutual Fire Insurance Company ("Nationwide") seeks a declaratory judgment that it has no duty to defend or indemnify its insureds, defendants Terry and Sharon Overstreet, or their sons, defendants Jonathan and Joel Overstreet, in an action brought against defendants by Jane Doe alleging that the sons sexually molested Jane Doe in the Overstreet home. At issue on Nationwide's motion for summary judgment are the following questions:

1. Whether defendants breached the Nationwide policy's provision requiring that notice of an "occurrence" must be given to Nationwide "as soon as practicable" where, as here, defendants waited to notify Nationwide until nearly five years after learning that Jane Doe accused their son of sexually molesting her, but seek to justify that delay on the ground that they did not know they might be held personally liable for the sexual molestation; and

2. Whether the Jane Doe complaint sets forth an "occurrence" covered by the Nationwide policy by alleging that the Overstreet sons sexually molested Jane Doe in the Overstreet home.

These questions have been fully briefed and argued and are now ripe for disposition.

I.

The following facts material to the resolution of Nationwide's motion for summary judgment are derived from the parties' stipulated facts and from the record as a whole.

Nationwide, an Ohio corporation that sells insurance policies in the Commonwealth of Virginia, issued a Golden Blanket Homeowners Policy (the "Policy") to defendants Terry and Sharon Overstreet covering occurrences at their residence from 1992 to 1994. Defendants Jonathan and Joel Overstreet, the sons of Terry and Sharon Overstreet, were minors living with their parents at this residence during the relevant coverage period. Accordingly, the Policy covered not only Terry and Sharon as named insureds, but also their minor sons. See Policy at 2, ¶ 3. The Policy provided coverage for any "occurrence," defined as bodily injury or property damage caused by an accident, id. at 3, ¶ 9, but excluded coverage for injuries that were "expected or intended by the insured." Id. at 13, ¶ 1(a). Also important to the resolution of this dispute is the provision in the Policy requiring the insureds to notify Nationwide "as soon as practicable" of an "accident or occurrence." Id. at 15, ¶ 3(a).¹

Sometime between 1992 and 1994, the Overstreets invited Sharon Overstreet's sister, Marie, and her family to live in the Overstreet home. According to Sharon, Marie's youngest daughter—Jane Doe— had been molested and raped by a babysitter, and the family wished to move away from the home where that had occurred. Accordingly, Marie asked the Overstreets to allow her family to live with them, and the Overstreets agreed. At this time, Marie told Sharon and Terry that Jane Doe might exhibit some behavioral problems while staying with the Overstreets, including (i) trying to enter a bathroom when the Overstreet sons were using it; (ii) wearing a dress without underwear and attempting to sit on boys' laps; and (iii) running around without clothing. Sharon contends that Jane Doe did exhibit such behavior and that her sons "begged" Sharon to ask Marie's family to leave, but that she did not do so.

Years after Marie's family moved out of the Overstreet home, on December 31, 2002, Marie informed Sharon that Jane Doe told Marie that Jonathan had abused Jane Doe when they lived at the Overstreet home.² At that time, Marie threatened to file suit against Jonathan, but Jonathan and Jane Doe reached a "successful agreement" by which Jonathan agreed to pay counseling fees for Jane Doe. Nevertheless relationships between Jonathan and Jane Doe's family continued to sour, and in January 2007, Jane Doe's father sent a letter indicating that Jane Doe's family intended to sue Jonathan. In anticipation of such a suit, the Overstreets obtained a lawyer on Jonathan's behalf. At Jane Doe's lawyer's request, Jonathan's lawyer signed a waiver to extend the statute of limitations applicable to Jane Doe's claims against Jonathan. Jonathan's lawyer then received a second waiver request—this time, Jane Doe's lawyers asked Terry, Sharon, and the church and school operated by them to waive the limitations period.

Apparently on notice by this waiver request that Jane Doe intended to sue her and Terry personally, Sharon emailed her insurance agent with the aforementioned facts on August 8, 2007, more than four and a half years after the Overstreets first learned of Jane Doe's accusations against Jonathan. On August 23, 2007, two weeks after defendants provided this notice, Jane Doe filed her complaint against defendants. From this complaint, defendants learned, for the first time, that Jane Doe was also accusing Terry, Sharon, and Joel Overstreet of personal liability related to the alleged molestation.

Specifically, the Jane Doe complaint alleges that between the years of 1992 and 1994, when Jane Doe was between the ages of five and seven, Jonathan and Joel Overstreet sexually molested her at the Overstreet home, as well as at the church and school operated by Terry and Sharon Overstreet. The first two counts of Jane Doe's complaint relate to the alleged molestation at the church and school. Importantly, Jane Doe also asserts a "special relationship" claim³ against Terry and Sharon relating to the alleged molestation at their home, claiming they owed Jane Doe a duty—by virtue of taking custody of Jane Doe while she was at their home—to control the conduct of their sons. Jane Doe also accuses Sharon of aiding and abetting Jonathan's alleged molestation of Jane Doe by alleging that Sharon once observed Jonathan sexually abusing Jane Doe on Jonathan's bed, but did nothing to stop him. Count IV of the complaint alleges assault and battery against Jonathan and Joel, and the final two counts of the complaint allege intentional infliction of emotional distress and gross negligence against all defendants. As a result of her alleged injuries, Jane Doe seeks compensatory damages of $3,000,000 and punitive damages of $350,000.

After receiving the Jane Doe complaint, defendants, invoking the Policy, demanded that Nationwide provide a defense and indemnification with respect to the Jane Doe action. Nationwide denied coverage on the grounds (i) that defendants failed to notify Nationwide of the occurrence "as soon as practicable," as required by the Policy and (ii) that the Policy, which excludes intentional acts, does not provide coverage for the causes of action asserted against defendants by Jane Doe. Nationwide then filed this action on December 4, 2007, seeking a declaratory judgment that it has no duty to defend or indemnify defendants in the Jane Doe action. Nationwide now moves for summary judgment, which defendants oppose, in part.⁴

II.

The summary judgment standard is too well-settled to require elaboration here. In essence, summary judgment is appropriate under Rule 56, Fed.R.Civ.P., only where, on the basis of undisputed material facts, the moving party is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Importantly, to defeat summary judgment the non-moving party may not rest upon a "mere scintilla" of evidence, but must set forth specific facts showing a genuine issue for trial. Id. at 324, 106 S.Ct. 2548; Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

III.

Nationwide has moved for summary judgment against defendants Terry, Sharon, and Jonathan Overstreet on the ground that these defendants failed to notify Nationwide of the actions underlying the Jane Doe lawsuit "as soon as practicable," as required by the Policy.⁵ It is uncontested (i) that these defendants had actual knowledge on December 31, 2002, that Jonathan Overstreet was accused of molesting Jane Doe at the Overstreet family residence, and (ii) that they did not notify Nationwide of these allegations until August 8, 2007. Nationwide contends that these defendants' nearly five-year delay in notifying Nationwide of the alleged molestation constitutes a breach of the Policy notice requirement. Defendant Jonathan Overstreet concedes that he did not provide notice "as soon as practicable" under the Policy, but defendants Terry and Sharon Overstreet argue that they did not violate the notice provision because they did not realize they might be held personally liable for the alleged sexual molestation by their son until at or near the time of the filing of the Jane Doe complaint on August 23, 2007.

In Virginia,⁶ an insurance policy is a contract and is therefore subject to rules of contract interpretation. Harleysville Mut. Ins. Co. v. Dollins, 201 Va. 73, 109 S.E.2d 405, 409 (1959); see also State Farm Fire & Cas. Co. v. Walton, 244 Va. 498, 423 S.E.2d 188, 191 (1992). Accordingly, words used in a policy are given "their ordinary and usual meaning when they are susceptible of such construction." Walton, 423 S.E.2d at 191; see also Lyon v. Paul Revere Life Ins. Co., 289 F.Supp.2d 740, 743 (W.D.Va.2002) ("In the absence of ambiguity, Virginia courts will give a policy's words their ordinary and customary meaning and apply them as written."). Applying this principle, Virginia courts have consistently held that policy provisions "requiring that written notice of an accident be given `as soon as practicable' or `immediately' are reasonable and enforceable," and...